New financing options—power purchase agreements and leases—are helping homeowners take part in the solar future.

Some homeowners have liquid investments or savings to purchase a solar-electric system outright, spending $12,000 to $60,000-plus. Others borrow what they need through a home-equity or personal loan. But many homeowners without access to cash or credit on that scale must be able to minimize up-front costs to take advantage of the technology. This has prompted installers to bring new payment offerings to the residential market. With moving targets for federal and state incentives, two options—power purchase agreements and leases—could be key to spurring residential solar adoption.

Buying into Production

Power purchase agreements (PPAs) have been a financing tool used for large commercial power projects for decades, enabling developers to secure investor funding based on the end users’—in this case, utilities’—contractual payments for power. SunRun Generation LLC—a San Francisco-based solar energy company—was among the first to adapt this tool for the residential PV market.

Here’s how their PPA works: For a fraction of the usual up-front cost, a homeowner can have a solar-electric system installed on their home by one of SunRun’s participating installers. SunRun then owns and operates the system, and sells the generated electricity back to the homeowner at a low rate—usually a rate that increases much more slowly than utility rates—for the duration of the lease. Most customers still get two bills—one from the utility and one from the solar company—but, if the system was sized to provide 100% of their energy needs, the utility bill can be essentially eliminated.

SunRun’s typical PPA is an 18-year agreement for the customer to purchase all the power produced by the system from the company. The monthly amount can vary seasonally but is generally predictable. Rates for SunRun agreements are typically 13.5 cents per kWh if about one-third of the installed cost is paid as an up-front fee. If a lower up-front payment is negotiated, the per-kWh rate the customer pays is greater. Based on an average utility bill of $100 and an installed system cost of $12,800, a consumer could expect to pay $4,267 up front for a system designed to meet all their energy needs. After the initial payment, the per-kWh cost is guaranteed by SunRun.

SunRun has more than 100 PPAs in California, and is considering expanding its service area within California and into other states. So far, SunRun has few competitors in the residential PPA market, but the competition is increasing rapidly—especially in California, where a law, signed by Governor Arnold Schwarzenegger in September 2008, streamlines the regulatory process for solar companies and developers.

Previously, solar companies had to go through the cumbersome process of registering as a utility with the state of California to use a PPA model. The new legislation (Assembly Bill 2863) removes several hurdles, clearing the way for PPA developments to become more easily installed in the state.

Open Energy Corp., of Solana Beach, is one of the companies that pushed for the new law. The residential solar-power company is helping lead the PPA revolution in California with its “Solar Community” model that uses PPAs to provide rooftop PV systems for real estate developments at no up-front cost to the homeowners or developers.